Question

Assuming that volumes stay constant, a 1 percent price increase produces between an 8 percent and...

Assuming that volumes stay constant, a 1 percent price increase produces between an 8 percent and 11 percent improvement in operating profits.

So does this mean that most businesses should raise their prices? Explain your answer.

Are these businesses leaving money on the table—that is, not generating the greatest revenue they could by knowing the customer better?” Explain your answer.

Business   Economics   
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Answer #1

If one firm in that particular industry raises its prices it might happen that the consumers substitute their good with some other good.Hence even though we have an increase in profits initially ,a susutained increase in prices will lead to losses as demand for their product goes down.So businesses should raise the price only when they are sure their customers wont flee or the increase in price is worth the loss of some customers.

we can say that the businesses are not taking full advantage of the market .this is because of imperfect knowledge of the market by both the consumer and the firm. hence if they have a better understanding of customer behaviour the businesses can increase their revenue.

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